Fixed-income investors who are worried about the rising rate environment ahead may consider a low-volatility, high-yield bond ETF strategy that helps limit downside risk and cushion potential pullbacks with its higher payouts.
“Low volatility funds – which capture most of the upside with lower downside risk. Reinvesting interest income – which in a period of declining prices is put back to work at higher yields – is always a good strategy. Spreads bear watching, too, since it’s where any emerging credit concerns are likely to be seen first. The bottom line is that while high yield is a long way from the double-digit yields of the past, it continues to offer an income opportunity for those who are comfortable taking some risk,” Salvatore J. Bruno, Chief Investment Officer and Managing Director for IndexIQ, said in a note.
Financial advisors can also learn more about IndexIQ’s insights at the upcoming virtual conference. On March 14, 2018, ETF Trends will be hosting its annual Virtual Summit, an online virtual conference environment where financial advisors can learn about current ETF issues, hear from industry experts and connect with peers without the burden of cost and traveling.
High-yield bonds may also be less negatively impacted by a rising rate environment. Junk bonds often perform well in times of rising rates, as long as the rate increases are driven by improving economic activity as we are witnessing now. The stronger economic growth makes it easier for companies to earn a return on capital and to pay down debt.